Understanding the Hidden Costs of ERP.
Not every expenditure for an ERP system is included in the contract. There are other expenses that can be hard to quantify up front in implementing ERP.
The key to keeping ERP implementation expenses under control is forethought, careful planning, less customization, quick implementation, and a tight rein on the budget.
Implementation overall needs to be checked carefully in an effort to keep costs under control. It’s also important to find out if the vendor’s implementation team consists of vendor employees or third-party contractors. Vendor employees are likely to be cheaper because their compensation is fixed rather than on an hourly basis.
Training:
It is an area where it is difficult to estimate costs. This is complicated because the goal of training is not just to have everyone take a course, it is to get them all familiar and comfortable with the new ERP system. on-the-job training as part of the implementation will reduce the cost & better reinforcement of learning
Customization:
It is another cost that’s hard to calculate. Although customization is to be avoided whenever possible. But almost all ERP systems will need some customization, and many implementations require extensive customization, especially if the system being implemented is a poor fit for your business.
Business processes often have to be redesigned to work better with the new ERP system. In fact, business process redesign is a central part of an ERP implementation. Much of the savings and other advantages that come from ERP come via business process redesign.
Again, this is an expense that is hard to quantify at the beginning of the project. It is also something that can lead to major cost overruns if it isn’t watched carefully.
Data transformation:
It is another vital step that is hard to cost quantify in the beginning. There will be an expense to translate existing data into a format compatible with your ERP system, however until you get into the nuts and bolts of the job it is hard to know how much money and effort it will take.
ERP maintenance
Once the system is up and running, you’ll have to pay maintenance fees to keep the system current. Typically, these will run around 22 percent of the price of the software.
It’s important to determine up front how that fee will be calculated. Most vendors will base the fee on the price you paid for the software, but some of them will charge a percentage of the current price of the software. As time goes on and the price of the ERP system escalates, so does the maintenance fee.
In spite of the uncertainties, it is still possible to work out a realistic budget for an ERP implementation and to stick fairly close to it. But doing so requires understanding the hidden costs and working hard to keep them under control.